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The Affordable Care Act At 2 Years Old

On this day two years ago, President Obama signed into law the Patient Protection and Affordable Care Act, the first of two pieces of legislation that would make up the full health care law. The Health Care and Education Reconciliation Act would follow a week later, making some changes to PPACA while also containing changes related to student loans.

We know many of the things that will happen because of this law (barring a ruling against it from Supreme Court, which soon will hear oral arguments in a legal challenge). Millions more people will get insurance, mostly through either Medicaid or the new health insurance exchanges that will become a major source of non-employment private insurance coverage. Small businesses will receive tax credits for the provision of health insurance, while larger businesses will be penalized if they don't offer coverage. All individuals, with some minor exceptions, will be required to purchase adequate health insurance. Medicare Part D cost-sharing will be reduced via closing of the donut hole.

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In addition, there will be many avenues of savings in public health programs or the system overall. Payments to Medicare Advantage plans will be reduced, while provider payments in traditional Medicare will grow more slowly. In a few years, the Independent Payment Advisory Board (IPAB) may be required to make recommendations for changes to provider payments if Medicare spending growth exceeds a certain target. Next year, a new 0.9 percent HI surtax will take effect for people making more than $200,000/$250,000 and the full 3.8 percent HI tax (the old 2.9 percent plus the surtax) will be applied to investment income as well. In 2018, high-cost health insurance plans will be hit with a 40 percent tax. Many changes to the health care delivery system will be made to emphasize quality over quantity, including penalizing hospitals for re-admissions, bundling payments to hospitals and doctors, and creating "accountable care organizations" to better coordinate care.

It will be very interesting to see how reform plays out. On paper, ACA will significantly reduce Medicare spending over the long-term, but it is questionable whether the provider reductions will be sustainable over the long-term (the chief actuary at the Center for Medicare and Medicaid Services believes the combination of the SGR and the other adjustments will be too much at some point). Of course, the bigger uncertainty is whether the delivery system reforms will slow health care cost growth overall.

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So far, there has been little change in CBO's projections of the effects of the Affordable Care Act since the original score of the final legislation. It was originally scored as reducing the deficit by $124 billion from 2010-2019 (excluding the student loan provisions) and was scored last year as doing so by $119 billion from 2012-2019. Over a comparable period of 2012-2019, the net cost of coverage provisions has gone down by $6 billion from the original score to the most recent score.

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As we said before, we must be vigilant to make sure the cost-control reforms stick and that the coverage provisions don't grow too rapidly. They must also not let political pressure get the better of lawmakers in regards to these things. In addition, we should stand ready to expand on the demonstrations and pilot projects that prove to be working. Still, the Affordable Care Act is only a start on controlling health care costs. There must be more done on Medicare and Medicaid in the context of an overall fiscal plan that makes certain their spending levels will be reasonably sustainable.